Quadratic hedging of equity-linked life insurance contracts under the real-world measure in discrete time

ABSTRACTThis paper reviews methods for hedging and valuation of insurance claims with an inherent financial risk, with special emphasis on quadratic hedging approaches and indifference pricing principles and their applications in insurance. It thus addresses aspects of the interplay between finance and insurance, an area which has gained considerable attention during the past years, in practice as well as in theory. Products combining insurance risk and financial risk have gained considerable market shares. Special attention is paid to unit-linked life insurance contracts, and it is demonstrated how these contracts can be valued and hedged by using traditional methods as well as more recent methods from incomplete financial markets such as risk-minimisation, mean-variance hedging, super-replication and indifference pricing with mean-variance utility functions.

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Optimal Hedging and Pricing of Equity-Linked Life Insurance Contracts in a Discrete-Time Incomplete Market

Journal of Probability and Statistics ◽

10.1155/2011/850727 ◽

2011 ◽

Vol 2011 ◽

pp. 1-23

Author(s):

Norman Josephy ◽

Lucia Kimball ◽

Victoria Steblovskaya

Keyword(s):

Financial Market ◽

Discrete Time ◽

Life Insurance ◽

Incomplete Market ◽

Insurance Contract ◽

Fair Price ◽

Hedging Strategy ◽

Insurance Contracts ◽

Risk Return ◽

Optimal Hedging

We present a method of optimal hedging and pricing of equity-linked life insurance products in an incomplete discrete-time financial market. A pure endowment life insurance contract with guarantee is used as an example. The financial market incompleteness is caused by the assumption that the underlying risky asset price ratios are distributed in a compact interval, generalizing the assumptions of multinomial incomplete market models. For a range of initial hedging capitals for the embedded financial option, we numerically solve an optimal hedging problem and determine a risk-return profile of each optimal non-self-financing hedging strategy. The fair price of the insurance contract is determined according to the insurer's risk-return preferences. Illustrative numerical results of testing our algorithm on hypothetical insurance contracts are documented. A discussion and a test of a hedging strategy recalibration technique for long-term contracts are presented.

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Evaluating Mental Health Services; How Do Programs for Children “Work” in the Real World? Edited by Carol T. Nixon & Denine A. Northrup. Sage, Thousand Oaks CA, 1997. pp. 306. £16.60 (pb).

Journal of Child Psychology and Psychiatry ◽

10.1017/s0021963098222918 ◽

1998 ◽

Vol 39 (6) ◽

pp. 935-936

Author(s):

Anne Worrall-Davies

Keyword(s):

Mental Health ◽

Mental Health Services ◽

Health Services ◽

Real World ◽

The Real

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Current Issues: Evidence-Based Practice for the Real World: Thoughts on Clinical Education in Communication Disorders

Perspectives on Administration and Supervision ◽

10.1044/aas20.3.100 ◽

2010 ◽

Vol 20 (3) ◽

pp. 100-105 ◽

Cited By ~ 3

Author(s):

Anne K. Bothe

Keyword(s):

Clinical Education ◽

Real World ◽

Evidence Based Practice ◽

Communication Disorders ◽

University Faculty ◽

Evidence Based ◽

Speech Language Pathology ◽

Basic Principles ◽

The Real ◽

Language Pathology

This article presents some streamlined and intentionally oversimplified ideas about educating future communication disorders professionals to use some of the most basic principles of evidence-based practice. Working from a popular five-step approach, modifications are suggested that may make the ideas more accessible, and therefore more useful, for university faculty, other supervisors, and future professionals in speech-language pathology, audiology, and related fields.

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